Japan turmoil keeps shares at three-month low

Shares staged a late turnaround on Monday but still closed at a three-month low as the prospect of a nuclear disaster in Japan weighed on global markets.

The benchmark S&P/ASX 200 closed 18.4 points lower, or 0.40 per cent, at 4626.40, having flirted with a six-month low earlier in the session, dropping as low as 4564.20. The broader All Ordinaries Index ended 24.7 points lower at 4688.90.

Heavy selling in Japan consigned its benchmark Nikkei index to its worst day since December 2, 2008, falling 6.18 per cent to 9620.49. Elsewhere in the region, China’s Shanghai Composite was up 0.13 per cent at 2937.63, while Hong Kong’s Hang Seng was 0.41 per cent higher at 23,345.88.

“It’s a case of people saying: whatever my risk assumptions were last week, I have to change them now as there has been a significant external variable that has emerged and I don’t really know how it’s going to pan out," said Celeste Funds Management chief investment officer, Frank Villante. “And in that environment, there is more selling than buying."

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Monday’s decline marked the fourth straight fall for the benchmark index, which is now more than halfway into an official correction, falling more than 6 per cent since peaking at 4940.03 on February 18.

The turnaround was driven by bargain hunting of shares in cyclical sectors, said Credit Suisse head of research sales, Ben Shakespeare. He said the turnaround, and volumes on the domestic bourse, were signs of strength in the local market.

“It tells you that there has been a fair bit of risk aversion in the last few weeks of the back of issues in the Middle East, and [the] market reaction was more muted because a risk had come out of the market already.

“The reaction of the Australian market in light of the falls in Japan has to be viewed as resilient."

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Uranium stocks were hit hard amid fears a nuclear disaster in Japan would lead to closures of plants and broader disenchantment with atomic power. Energy Resources of Australia plunged $1.15, or 12.23 per cent, to $8.25, Paladin Energy tumbled 78¢, or 16.49 per cent, to $3.95, and Extract Resources slumped 82¢, or 7.71 per cent, to $9.81.

UBS equity strategist David Cassidy said he expected the “knee-jerk" selling to die down as investor attention returns to ongoing issues in other parts of the world.

“Despite being an enormous tragedy, I don’t think the economic impact is going to be that material," he said. “At the moment you have got a pretty attractive valuation situation, and other factors in Europe, the US and China are going to have a bigger impact over the next few months."

The big four banks were not immune to broader market declines. Commonwealth Bank fell 28¢ to $50.58, ANZ Banking Group slid 21¢ to $22.96, National Australia Bank shed 6¢ to $24.68 and Westpac fell 3¢ to $22.87.

QBE Insurance closed 18¢ lower at $16.99. In the pre-market, the insurer estimated the net claims from the Japanese earthquake and tsunami would be $US125 million, and the total cost of all recent catastrophes would be $US550 million, more than a third of its full-year allowance of $US1.65 billion. Shares in the rest of the insurance sector were lower, but not hit as hard as some market watchers had expected.

“Insurance did reasonably well considering the impact on the industry of recent events," Mr Shakespeare said. “There is a view that global capacity is going to be drawn down, which may ultimately see less pressure on commercial premiums."

Shares in the steel-making sector were strong with BlueScope Steel climbing 14.5¢ to $2, and OneSteel adding 4¢ to $2.44.

“BlueScope was a very strong performer," Mr Shakespeare said. “People are expecting steel price rises from a potential shutdown of Japanese steel capacity, but we heard conflicting stories of the impact and this point is still very hard to quantify."

Other shares gained from a shift into defensive sectors. Telstra closed 2¢ higher at $2.66, Woolworths rose 10¢ to $26.89, Cochlear rose 44¢ to $78.75 and Tabcorp was up 1¢ to $7.2. Meanwhile, QR National added 4¢ to close at $3.15 and Leighton Holdings gained 25¢ to finish at $29.10.

“In a situation like this, everyone dusts off the Japan relevance book and they realise that Japan is still a very significant trading partner," Mr Villante said. “They have been overshadowed by China lately but in many of the commodities they are our number two customer. Obviously, the tourism sector will be affected, but I think it’s more the commodity end of the market that feels it more."